George Gilder on the Materialist Superstition

WAS AT THE WATERGATE THE OTHER EVENING for a book party, held in the apartment of John Wohlstetter. He has a grand piano, a beautiful view over the Potomac River, and a book to sell. Actu- ally there were two books: Wohlstetter’s Sleepwalking with the Bomb (see TAS, October 2012) and a new edition of George Gilder’s best seller Wealth and Poverty (Regnery Publishing). Gilder’s original text is augmented by a new prologue and epilogue and a section on monetary policy.

With Wealth and Poverty (1981), Gilder, who would go on to co-found the Discovery Institute, became one of the leading supply-siders. This is a school of thought that aims to revive the economy by reducing income- and capital-gains tax rates. Also regulations. President Reagan agreed, and by 1983 the U.S. economy had improved dramatically. In contrast, Gilder writes that under Obama we have experienced

"a morbid subversion of the infostructures of its economy. The public sector has become a manipulative force, aggressively intervening in the venture and financial sectors with guarantees and subventions that attract talent and debauch it. At the same time the government provides constant downside surprises of taxation, currency devaluation, and multifarious regulation."

This in turn has lead to “real estate depreciation, disinvestment, capital flight, skilled emigration and contraction of private employment.” Obama has been so “drastically negative” toward the private economy that the right changes could release “huge positive energies.” That happened in Canada, New Zealand, and Israel. Here, we need a “full supply-side solution.”

Few commentators mention these ideas today. A grim consensus has settled over the establishment in favor of “root canal economics”—the late Jude Wanni- ski’s phrase. All talk of supply-side has been pushed offstage. Paul Ryan is an exception and Gilder singles him out for praise.

We keep trying to solve our problems by cutting spending (which the Democrats won’t allow) and by raising tax rates (which the House Republicans have blocked). So the root canal work hasn’t happened yet. Post-election may be another story. But those policies are afflicting Europe with a highly destructive austerity. In response to rioting in Greece and Spain, the consensus didn’t budge. Keep on with more of the same, the ruling class ordered.

One of Gilder’s new messages is that we should refer to information rather than “incentives.” A successful economy is driven less by “the sharp edge of incentives than by the unimpeded flow of information.” High tax rates impede that flow, just as needless stop signs impede the flow of traffic. Advances in the economy come from “the development and application of productive knowledge,” not from sticks and carrots.

Focusing on incentives also implies that capitalism is based on greed, when in reality greed “prompts capitalists to seek guarantees.” Gilder mentions the wasteful dollars lavished on “archaic windmills, etha- nol farms and subsidized Druidical sunhenges.”

He is also critical of the “shrink the budget” rhetoric admired by many conservatives. Our focus on “deficits,” the European obsession, assumes that “balance” can be restored by higher taxes. Economics is thereby reduced to accountancy. Jimmy Carter pretty much balanced the budget. Bad spending, often called “investment,” tends to be set to one side and overlooked.

Gilder also has little time for the ceaseless tax-payer subsidy of science, of which climate change is only the best-known example. Its goal is to disguise the billions already wasted and to lay the groundwork for billions more to come by claiming that scientific breakthrough is just around the corner.

Here are seven Gilder items, compressed from the prologue to the new edition of Wealth and Poverty:• For unmarried males, work simply cannot compete with the tempting bonanzas of free time and promiscuous leisure afforded by the welfare state.• The key issue in economics is not aligning incen- tives with some public good but aligning knowledge with power. Capitalist economies grow because they award wealth to its creators.• Over the last decade, the U.S. has witnessed a clas- sic confrontation between the forces of entrepre- neurial capitalism and those of established institutions claiming a higher virtue: expertise.•The great temptation and delusion of socialist regimes is to attempt to guarantee the value of things rather than the ownership of them. Driving the obsession is the idea that the difference between people is what they own rather than what they know.• All progress comes from the creative minority. If we continue to harass, overtax, and oppressively regu- late the entrepreneurs, our liberal politicians will be horrified to discover how swiftly the physical means of production dissolve into so much corroded wire, abandoned batteries, scrap metal, and jungle rot.• Like the steel mills of Pittsburgh, the commercial real estate of Detroit, Kodak’s patent portfolio of a decade ago, or the HP computers of a year ago, the physical base of the 1 percent can be a trap of wealth, not an enduring fount of liquid treasure. In all these cases, the things stayed pretty much the same. But thoughts about them changed. Much of what was supremely valuable in 1980 plunged to near worthlessness by 2012.• The belief that wealth consists not of ideas, atti- tudes, moral codes, and mental disciplines but of definable and static things that can be seized and redistributed is the materialist superstition.

RE-READING THE FIRST EDITION of Wealth and Poverty to make room for newer ideas, Gilder found he was writing a new book. It will be published as Knowledge and Power, probably next spring. I managed to talk with him briefly before the speeches began. He is 72 now and still overflowing with ideas.

He has much to say on information theory. Kurt Gödel showed that all mathematical proofs are incomplete and always need further assump- tions. Gilder turns this idea into a platform from which to criticize modern economics, Darwinian biology, and the behaviorist psychology of B.F. Skinner. They all try to imitate physics, but physics itself is marred by uncertainty. So the blind are leading the blind.

“Information theory defines information as sur- prise,” Gilder said. But deterministic theories can never predict it. If they could, socialism would work. “Profit measures surprising returns and is measured by entropy,” he said. “It takes a low entropy carrier— no surprises—to differentiate between the carrier and the content at the receiving end. Gold is a low entropy carrier for the surprises of creative capitalism. Activist monetary policy [read: Bernanke] shortens the time horizons of the economy and pushes all the profits to short-term financial arbitrage.”

Got all that? Gilder was called away to give his speech, so you’ll just have to read the book.

I looked back at some of Gilder’s earlier works, including Microcosm (1989) and Life After Television (1990). He began to lose me with his acronyms and talk of bandwidth, but it all fell into place with the Internet, which didn’t become a household word before 1996. See Gilder’s Telecosm (2000). If you want to know the technical detail behind the Internet and the digital world, you can unearth it all from Gilder’s earlier books. It’s safe to say that binary digits will have as profound an effect on our times as the printing press did earlier.

My own belief is that George Gilder is the most original thinker of our time and perhaps our leading conservative writer. One of his great strengths has always been his optimism. There are some downbeat notes in his new edition, so I asked him if he was still an optimist.

“I get up in the morning,” he replied, “I write books, I make investments.” But he allowed that he is concerned about what might happen if Obama is reelected. For one thing, there could be “war in the Middle East.”